Turkey to continue Iran gas exports despite US sanctions

Omid Shokri Kalehsar, a senior energy security analyst and PhD candidate in international relations, said in an exclusive interview with Mehr News Agency that Turkey is keen on buying natural gas from Iran with “reasonable price” in contrast to the price it pays for the gas imported from Russia and Azerbaijan.

He stressed that if Iran and Turkey can agree on a price and Iran is able to produce more natural gas, Turkey will be interested to consider buying gas from Iran instead of the other two rivals.

He went on to add, however, that while Turkey’s private companies have enough financial resources to attract Iran’s market, a legal framework, an efficient decision-making process, and political stability are also needed to make attracting foreign investment possible.

The following is the text of his interview with Mehr News:

Back in 2015, Iran had voiced willingness to pipe its natural gas to Europe through Turkey. Did that plan ever come to anything? And is the project still feasible after the US withdrawal from the Iran nuclear deal and the reinstatement of economic sanctions on Tehran?

Iranian officials many times showed their interest to export natural gas to EU and play a role in EU energy security. Iran holds world’s second natural gas reserve but at present has no major natural gas export. It should be noted that Iran has high domestic natural gas consumption and suffers lack of foreign investment and technology and capital capacities due to sanctions. Iran just exports annually 10 bcm to Turkey. Major natural gas export needs more foreign investment, financial resources and decrease in domestic consumption.

In coming years there is no more demand in EU natural gas market. At present EU members states’ LNG imports from US and Russia plays a key role in EU natural gas market and is planning to export more natural gas to EU via new pipeline projects such as Turk Stream and Nord Stream 2. EU members also made more investment in renewable energy and energy efficiency.

Iran needs about 4-6$ billion to construct required infrastructure to deliver natural gas to Turkey borders. And at present Iran has no more capital capacities. And current natural gas price is not economical for Iran to export natural gas to EU via pipeline.

Ankara has pledged to boost imports of Iranian gas despite US sanctions. Is that request still on the table?

US sanctions targeted Iran oil sector and Turkey will continue natural gas import from Iran. Turkey has some domestic pipelines project and at present natural gas system is not integrated, Turkey needs Iran natural gas to use it in Southern part of Turkey which has cold winters. Ankara is interested in importing more natural gas from Iran. Turkey begins to import natural gas from Azerbaijan via TANAP project and by next year Turkey will import natural gas from Russia through Turk Stream project. By 2026 and at the end of Iran-Turkey natural gas agreement, Turkey is interested in importing more natural gas from Iran and extend the natural gas agreement with Iran. Turkey’s officials have repeatedly stated that they want to buy natural gas from Iran with reasonable price in contrast to the gas price which Turkey imports from Russia and Azerbaijan. If Iran and Turkey agree on price and Iran is able to produce more natural gas, Turkey will import more natural gas from Iran. It should be noted that more natural gas production needs more investment in oil and gas fields and requires infrastructure and giving priority to energy efficiency in Iran. Turkey told US officials that it will continue importing oil and gas from Iran but during last month Turkey decreased oil import from Iran.

Turkey has stressed that it does not approve of US sanctions against Iran, calling them ‘unilateral’. Meanwhile, Turkish energy company Unit International has a strong presence in Iran, with a $4.2 billion worth of contract with Iran’s energy ministry to build seven natural gas power plants here. How much progress has the company achieved with the project so far? Has Unit International decided to remain in Iran or abandon its investment projects under US pressure?

Post-JCPOA Iran expected to have more foreign investment in its energy sector. Unit International was one of the foreign firms which signed an agreement with Iran to build seven natural gas power plants. According the agreement, Iran will provide the natural gas which Unit International need for these power plants. Iran has also pledged to guarantee purchase generated electricity from these power plants at a predetermined agreed price over a period of 6 years.

By September 2018, there was no major development in this agreement. There were challenges and debates between government and parliament over this agreement. Asadollah Gharakhani, spokesman of Iranian Parliament Commission on Energy announced that in attraction of foreign investors for energy sector, government policy should include transferring of knowledge and technology, and also human resource training. He refers to the fact that Unit International has no history of construction of power plants and this company was not considered a power plant manufacturer, he claims that Unit International in Turkey occasionally organizes hotels and business activities.

US withdrawal from JCPOA is a major problem for any foreign company interested in investing in Iran energy sector. It is expected that Unit International needs Turkish government’s strong support to keep investing in Iran and to continue construction of natural gas power plants. I think it will not be easy for Unit International to maintain in Iran. The other problem in both Iran government and parliament is the support to this company and other foreign firms to be more active in Iran energy sector. Turkey’s private companies have good experience and enough financial resources to attract the Iran market. The problem is that to attract foreign investment you need a legal framework, an efficient and fast decision process and political stability (especially in the international context). At the moment these variables are far from being achieved.

Omid Shokri Kalehsar is a senior energy security analyst and PhD candidate in International Relations. His primary research interest is in the area of energy diplomacy, geopolitics of energy, Iran–Russia relations and Iran-Turkey relations.